Gold, Silver and Cycles

Last year when the price of gold was moving back up toward $2,000, the central banks were concerned that if gold was allowed to reach the psychologically important $2,000 level, it would move sentiment away from paper currencies and bonds. They don’t mind a “controlled” rise, but from April to October 2012 gold shot up by $200 and that forced the banks into action.

We have written about this numerous times, but the most important thing you should understand about what happened is that the banks used up 500 tonnes of GLD gold shed by the fund during the engineered price drop, to satisfy Chinese demand.

Jim Rickards reported that the 500 tonnes of gold ended up at Swiss refineries and was re-cast into 1000/oz. bars of .9999 purity and then sent off to China, never to see the light of day again in our lifetime. Since GLD’s gold can be (and is) leased out, this 500 tonnes is no longer available to be re hypothecated to back the shorting of gold on the Comex. It is no longer in play, not just the 500 tonnes, but the massive leverage that it offers as well.

That should suggest that if gold falls further this spring, it wouldn’t be anything like what happened in the past two years. The 500 tonnes used to precipitate the $600 drop in gold is gone; a one-time event.
I’ve been checking out the technical research from Charles Nenner lately. I am not interested in his short-term trading signals but am fascinated by his longer-term cyclical analysis. He has a strong following.

In general, he expects gold and silver to bottom this summer, most likely in July and then power forward for the next five years. They will be one of the better performing assets to own. The stock market will start to pull back around the same time and correct until 2020. Then it’s off to astounding new highs.

I can hear Andy Hoffman now – he’s stomping and pacing back and forth. Andy hates TA. I say this much – it works brilliantly, in hindsight. The trick is to find TA that is accurate going forward and most fail because the markets are not free, they’re manipulated. Nenner claims his data, combined with numerous cycles work in spite of manipulation or short-term political or social changes.

I don’t know if he is correct, but I bet all of our readers would be thrilled at the prospect of a resumption of the precious metals bull market in only 60 to 90 days. I know I would.

Susan and I fly back to Minnesota today. We missed one of the worst winters in decades, though we did return for a week or so in late November for Thanksgiving and in early March to see the kids and check in on Miles Franklin. We will stay up North until early October and then once again head back to Miami. It’s a unique place to live. There’s much to love, especially the weather – and much to really annoy you there too. We enjoy the fabulous weather and the ocean. Miami is an “international” city.

The weather will be 30 degrees cooler than what we are leaving behind in Miami. But I am hopeful that warm weather will arrive shortly, along with rising prices in gold and silver (though they could fall back a bit before bottoming and reversing course). The mid-1,200s should hold. We will know soon.

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